Date: 20061117
Docket: T-846-05
Citation:
2006 FC 1395
Ottawa, Ontario, November 17,
2006
PRESENT: The Honourable
Mr. Justice de Montigny
BETWEEN:
PATRICK
DESJEAN
Plaintiff
and
INTERMIX
MEDIA, INC.
Defendant
REASONS FOR JUDGMENT
AND JUDGMENT
[1]
On
May 13, 2005, Patrick Desjean filed a statement of claim for a proposed class action,
alleging that Intermix Media, Inc. (Intermix) violated the misleading
representations provisions of the Competition Act, R.S.C. 1985, c. C-34
(subsections 52(1), 52(1.1) and 52(2)(e)).
[2]
Mr.
Desjean alleges that Intermix violated the above-mentioned provisions of the Competition
Act by bundling “spyware” or “adware” with the free software that it
offered on various Internet websites - in particular, “MyCoolScreen.com” (the
Website) - without disclosing the bundling of such spyware or adware to
consumers who downloaded the free software.
[3]
On
August 1, 2005, Intermix filed a notice of motion and moved this Court for an order
dismissing Mr. Desjean’s statement of claim pursuant to rule 221 of the Federal
Courts Rules on the basis that: a) this Court lacks jurisdiction over
Intermix and the matter; b) Mr. Desjean’s claim is frivolous or vexatious; and
c) Mr. Desjean’s claim constitutes an abuse of the process of the Court.
Intermix made alternative arguments that this Court is not the appropriate forum
for Mr. Desjean’s claim, and that Mr. Desjean’s claim comprises submissions
which are not based on either the Competition Act or the laws of Canada.
[4]
For
the reasons to be more fully developed below, I have come to the conclusion
that Intermix must succeed because Mr. Desjean’s statement of claim fails to
establish this Court’s jurisdiction. As a result, I need not deal with the
other grounds Intermix brought forward to dismiss this action.
[5]
I
hasten to add that I am much indebted to Intermix’s counsel for their very able
written submissions, from which I have extensively borrowed in writing these
reasons.
BACKGROUND
[6]
In
his statement of claim for a proposed class action, Mr. Desjean alleges that
Intermix offers ostensibly free software programs, such as screensavers and
games, that anyone can download. Without disclosure to consumers, however,
Intermix surreptitiously tacks onto these programs one or more additional
programs that deliver ads and other invasive content. Thus, when Mr. Desjean
installed a “free” Intermix screensaver or game on his computer, he also
unwittingly installed one or more spyware programs. In this manner, known as
“bundling”, Intermix has spread its advertising programs onto Mr. Desjean’s
hard drive.
[7]
Spyware
programs that Intermix has spread in this manner include “Search Miracle”, a
program that shows pop-up advertisements; “IncrediFind”, a program that
redirects web addresses to Intermix websites; “Updater”, a program that allows
Intermix to add or update programs and functionality to a user’s computer; and
various “Toolbar” programs, which overlay a “toolbar” onto users’ web browsers
linking to Intermix’s services and clients. Because these programs are permanently
installed on the user’s hard drive and run during subsequent browsing sessions,
they continue to advertise Intermix’s clients and report information about the
user long after the user has left the websites of Intermix or its agents.
[8]
Mr.
Desjean further alleges that Intermix does not adequately inform consumers that
its software has been installed on their computers. The only hint of disclosure
that additional software was bundled with the screensaver is the vague
statement in very tiny font on a single web page, telling users that “by
downloading this screensaver, [they] agree to our Terms of Service.” This
“Terms of Service” page, in turn, apparently addresses primarily legal issues
and does not adequately warn users of what they will be receiving.
[9]
Exacerbating
the harm from its installation of hidden spyware programs, Intermix is alleged
to employ deceptive methods to prevent users from detecting and removing its
software. For example, Mr. Desjean contends that Intermix designs its spyware
programs so that when users uninstall the program with which the spyware was
bundled (for example, a screensaver), Intermix’s spyware products remain
behind, installed and fully operational. Intermix also prevents its spyware
programs from being listed in the commonly accessed “Add/Remove Programs”
utility in the Microsoft Windows operating system, making removal yet more
difficult. Additionally, it fails to provide its own “uninstall” utility within
many of its spyware programs’ files or folders.
[10]
Mr.
Desjean alleges that Intermix, by engaging in the acts and practices described
above, has engaged in deceptive, fraudulent and illegal practices, and false
advertising in the distribution of spyware and adware, thereby enabling third
parties to expose Mr. Desjean to all sorts of schemes and causing computer
users to waste time and money to rid computers of the software that caused
their computers to come to a halt or crash altogether. By so doing, Intermix
has allegedly contravened subsections 52(1), 52(1.1) and paragraph 52(2)(e) of
the Competition Act. Mr. Desjean claims he is entitled to seek recovery
of damages pursuant to paragraph 36(1)(a) and subsection 36(3) of the same Act.
He also contends that he has disclosed a reasonable cause of action to apply to
certify this action as a class action in accordance with rule 299.12(3) of the Federal
Courts Rules, SOR/2002-417, s. 17.
[11]
Mr.
Desjean has asked the Court to issue a judgment against Intermix as follows,
ordering that it:
Direct Defendant to provide Plaintiff
with all records of all Defendant’s advertising, ad-serving, redirecting and
toolbar programs installed onto consumers’ computers, including all records
concerning or reflecting any disclosure provided to consumers prior to or
during installation;
Direct Defendant to provide Plaintiff
with an accounting of all revenues generated from the distribution of its
advertising, ad-serving, redirecting and toolbar programs and that a money
judgment be entered against Defendant in the sum of unjust enrichment;
Direct that a money judgment
in civil penalties pursuant to sections 36. (1) (a) and 36 (3) of the Competition
Act be entered against Defendant in favour of the Plaintiff based upon the sum
of Five Hundred Dollars ($500);
Direct that a money judgment
be entered against Defendant in favour of Plaintiff as to the costs pursuant to
Rule 400 (1) of the Federal Court Rules;
Grant Plaintiff such other and
further relief as this Court finds just and proper.
[12]
Needless
to say, Intermix vigorously disputes the facts as put forward by Mr. Desjean. By
way of an affidavit signed by Todd Smith, Vice-President of Business and
Development for Intermix Network LLC (a wholly-owned subsidiary of Intermix), it
is alleged that Intermix never knowingly distributed or installed many of the
applications to which Mr. Desjean refers from any of its websites. He also affirms
that Intermix offered consumers full disclosure with one or multiple separate
download windows explaining what the user would be installing with the free
screensaver. Finally, Mr. Smith deposed that Intermix in no way impeded or
prevented its programs from being listed in the commonly accessed “Add/Remove
Programs”, and provided its own “uninstall” utility, which works properly and
removes all files and installed functionality.
[13]
In
another affidavit sworn by Brett Brewer, President of Intermix, another set of
facts was also presented relating more particularly to the issue of
jurisdiction. It appears Intermix is a publicly-traded Delaware corporation
with its principal offices in Los Angeles, California. Intermix does not have
any offices in Canada although it has, in the past, subsidized office
space for contractors working on two websites purchased by Intermix.
[14]
According
to Intermix’s Director of Human Resources, Intermix does not have nor has it
ever had any employees in Canada. On the other hand, Intermix currently has
a contractual relationship with two independent contractors in Canada that
provide newsletter edition services unrelated to the matters at issue in the present
litigation.
[15]
Intermix
has no bank accounts in Canada, nor does it pay taxes to either the federal
government or any provincial government. Intermix is not registered as doing
business in any Canadian jurisdiction.
[16]
Intermix
has no direct advertising, marketing or solicitation directed at the Canadian
market. No person affiliated with Intermix, either directly or indirectly, as an
employee or director, has ever attended trade shows or any other
Internet-industry promotional events in Canada. Intermix’s
websites in general and, in particular, the Website Mr. Desjean refers to, does
not target Canada or Canadian
consumers in any specific way. It contains no specific references to Canada, no
specialized content for a Canadian audience, no French language content.
[17]
According
to the affidavit of Mr. Smith, Intermix has no servers in Canada. MyCoolScreen.com
is not hosted on servers located in Canada, but on a server in California.
[18]
Approximately
66 per cent of all downloads from either Intermix websites or third parties
distributing Intermix applications are by American users, the remaining 34 per
cent being divided throughout the world (with Canada accounting for 2.5 to 5.3
per cent of the downloads, depending on the application).
[19]
The
Licence Agreement users enter into before downloading Intermix applications
contains a jurisdiction and choice of law clause providing that the laws of the
State of California will govern
the agreement, without giving effect to any conflict of law principles.
[20]
These
facts, at least as they relate to Intermix’s activities and its corporate
structure, must be taken as accepted for Mr. Desjean has not challenged them -
nor has he thought fit to cross-examine Mr. Smith or Mr. Brewer on these
aspects of their affidavits.
ISSUES
[21]
The
issues to be decided upon this motion are threefold:
·
Does
this Court have jurisdiction over the defendant and the matter?
·
Is
the statement of claim frivolous or vexatious?
·
Does
the statement of claim constitute an abuse of the process of the Court?
ANALYSIS
[22]
The
assumption of jurisdiction by a court against an out-of-the country defendant always
raises complex issues. The Supreme Court of Canada has revisited these issues
in the last fifteen years to take into account the new realities of our modern
world. These problems, however complex, are compounded when applied in the
context of claims arising out of the use of an evolving technology that does
not know of national boundaries. While Canadian courts have dealt with these
issues on a few occasions, it is fair to say that the development of the law is
still in its infancy stage and that legislatures throughout the world are increasingly
trying to catch up and adapt their legal system to new virtual communications
technology. As our Supreme Court itself recognized in Society of Composers,
Authors and Music Publishers of Canada v. Canadian Assn. of Internet Providers, 2004 SCC 45, [2004] 2
S.C.R. 427 at paragraph 41:
The issue of global forum shopping for
actions for Internet torts has scarcely been addressed. The availability of
child pornography on the Internet is a matter of serious concern. E-commerce is
growing. Internet liability is thus a vast field where the legal harvest is
only beginning to ripen.
[23]
There
are three ways in which a court may assert jurisdiction over an out-of-country
defendant. It may assume jurisdiction if the defendant is physically present
within the territory of the court. Second, the foreign resident may consent to
submit the dispute to the Canadian court’s jurisdiction. Third, the court may
declare itself competent to hear the case, in appropriate circumstances. This
case raises the third possibility.
[24]
While
the common law rules governing these jurisdictional issues had been quite
stable in the nineteenth and twentieth centuries, the Supreme Court of Canada
revisited them in four seminal decisions to ensure they were in keeping with modern
social and economic realities.
[25]
In Morguard
Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077, Justice Gérard
La Forest recognized that it is unfair to compel a plaintiff to begin an action
in the province where the defendant resides, whatever the inconvenience and
costs this may bring. On the other hand, he also acknowledged that fairness to
the defendant requires that the judgment be issued by a court acting with
properly restrained jurisdiction. This equilibrium, in his view, could be
achieved by the necessity of establishing what he called “a real and
substantial connection.” As he wrote, at paragraph 51:
It seems to me that the approach of permitting
suit where there is a real and substantial connection with the action provides
a reasonable balance between the rights of the parties. It affords some
protection against being pursued in jurisdictions having little or no
connection with the transaction or the parties. In a world where even the most
familiar things we buy and sell originate or are manufactured elsewhere, and
where people are constantly moving from province to province, it is simply
anachronistic to uphold a “power theory” or a single situs for torts or
contracts for the proper exercise of jurisdiction.
[26]
Both
in Morguard, above, Tolofson v. Jensen, [1994] 3 S.C.R. 1022, and
in Hunt v. T&N plc, [1993] 4 S.C.R. 289, the Court affirmed that
the same test and the same need for restraint apply to both assumed
jurisdiction and jurisdiction for recognition and enforcement purposes. Finally,
in Amchem Products Inc. v. British Columbia (Workers’ Compensation
Board), [1993] 1 S.C.R. 897, the Supreme Court elaborated the doctrine of forum
non conveniens, according to which a court can use its discretion to
decline jurisdiction where the case would be more appropriately dealt with in
another jurisdiction.
[27]
The
language the Supreme Court used in all these cases to describe a real and
substantial connection was deliberately vague, allowing for flexibility in the
application of the test and for its adaptability to new situations. While
maintaining a flexible approach, the Ontario Court of Appeal, in Muscutt v.
Courcelles (2002), 213 D.L.R. (4th) 577, developed eight factors which
courts should look to when dealing with questions of assumed jurisdiction, in
order to ensure jurisprudential clarity and certainty. These factors, which
were applied in four companion cases decided the same day (Leufkens v. Alba
Tours International Inc. (2002), 213 D.L.R. (4th) 614; Lemmex v.
Bernard (2002), 213 D.L.R. (4th) 627; Sinclair v. Cracker Barrel
Old Country Store, Inc. (2002), 213 D.L.R. (4th) 643; Gajraj v. DeBernardo
(2002), 213 D.L.R. (4th) 651), are:
1. The connection
between the forum and the plaintiff’s claim;
2. The connection
between the forum and the defendant;
3. Unfairness to the defendant
in assuming jurisdiction;
4. Unfairness to the plaintiff
in not assuming jurisdiction;
5. Involvement of
other parties to the suit;
6. The
court’s willingness to recognize and enforce an extra-provincial judgment
rendered on the same jurisdictional basis;
7. Whether the case is
interprovincial or international in nature; and
8. Comity and the standards of
jurisdiction, recognition and enforcement prevailing elsewhere.
[28]
In
the present case, the application of these factors, none of which is
determinative in and of itself, clearly indicates that the connection between
the forum and the defendant or between the forum and the subject matter is not
substantial enough to warrant this Court’s intervention.
[29]
While
the plaintiff allegedly suffered damages to a computer located in Canada, that is not enough to
confirm this Court’s jurisdiction. There is clearly no connection between the
forum and the defendant. Intermix has no servers in Canada. The impugned Website
is not hosted on servers located in Canada, but on a server situated in California.
[30]
Intermix
does not have, nor has it ever had, any employees in Canada. Intermix currently has
a contractual relationship with two independent contractors in Canada that provide newsletter
edition services unrelated to the matters at issue in the present litigation.
[31]
Intermix
does not have any offices in Canada. It did, in the past, subsidize office space for
contractors working on two websites Intermix had purchased, but ceased doing so
more than three years ago and has never itself maintained or leased office
space in Canada.
[32]
Further,
Intermix has in no way availed itself of Canadian laws as it does not do any
business in Canada through the Website at
issue.
[33]
Intermix
has no bank accounts in Canada. Intermix does not pay
taxes to either the federal government or any provincial government and it is
not registered for GST or PST/HST purposes. Intermix is not registered as doing
business in any Canadian jurisdiction.
[34]
Intermix
has no direct advertising, marketing or solicitation aimed at the Canadian
market. No person affiliated with Intermix, either directly or indirectly, as
an employee or director, has ever attended trade shows or any other Internet
industry promotional events in Canada. The only three transactions which Intermix entered into
with Canadian companies were for short-term purposes and fall far short of
establishing a significant connection between Canada and Intermix.
[35]
Furthermore,
it would be manifestly unfair to subject Intermix to this Court’s jurisdiction
since it would, in effect, mean a U.S.-based operator of a website, with no
business assets in Canada and no physical presence in the jurisdiction, could
be sued in this country as well as in any other country from which a plaintiff
might choose to download its products. Despite the inconvenience for plaintiffs
in similar situation of having to pursue their claims in foreign jurisdictions,
this is only one factor to be taken into consideration. As the law now appears
to stand, this is not enough to bring a claim within the jurisdiction of a
Canadian court. It would put much too great an onus on foreign website
operators or any foreign commercial undertakings with no real presence in Canada which happen to deal
with Canadian residents.
[36]
With
respect to the fourth factor, Intermix could not reasonably expect to be sued
in Canada for allegedly breaching
the criminal provisions of Canadian competition legislation because of alleged
false advertising on its website – one which is solely supported by a server located
in the U.S. Clearly, any alleged
false representations, if made, were made by Intermix in the U.S., hosted by a
server situated in the U.S. and thus not within this
Court’s jurisdiction. Jurisdiction cannot be founded simply upon the fact that
the plaintiff was in Canada when he downloaded the
foreign content. Plaintiff’s inconvenience in suing Intermix in the U.S. is also insufficient to
justify this Court’s jurisdiction.
[37]
The
sixth factor also favors Intermix. The Foreign Extraterritorial Measures Act,
R.S.C. 1985, c. F-29, is a clear expression by Canada that foreign antitrust judgments involve its
national interests. More specifically, paragraph 8(1)(a) of the Act allows the
Attorney General of Canada to declare, in appropriate circumstances, that a
foreign antitrust judgment should not be “recognized or enforceable in any
manner in Canada.” If Canada reserves the right to
refuse enforcement of American antitrust judgments, this Court should not be
placed in the position of applying Canadian competition law to American
corporations doing business in the U.S. and having no assets in Canada, thereby compelling a plaintiff
to seek enforcement in the U.S. of a Canadian antitrust judgment.
[38]
Finally,
the seventh and the eighth factors lead to the same conclusion. As the Ontario
Court of Appeal recognized in Muscutt, above, at paragraph 95, “[t]he
decisions in Morguard, Tolofson and Hunt suggest that the
assumption of jurisdiction is more easily justified in interprovincial cases
than in international cases.” Moreover, there are only limited circumstances where
damages sustained within a jurisdiction because of a wrong committed elsewhere
would be accepted as a basis for assumed jurisdiction (Lemmex, above, at
paragraph 48).
[39]
One
of the first and only Canadian cases on Internet jurisdiction is that of Braintech,
Inc. v. Kostiuk (1999), 171 D.L.R. (4th) 46. In that case,
the British Columbia Court of Appeal stated that whether an Internet presence
of a non-resident can constitute a real and substantial connection with the
forum will depend upon the character of the website. This includes whether the
site is passive, is used to interact with residents of Canada, or is used to conduct
business with Canadian residents. Beyond that case, Canada’s jurisprudence is
essentially devoid of any substantial guidance on the question of Internet
jurisdiction.
[40]
American
courts have dealt with this issue, however, and they have developed an approach
that is quite instructive for the purpose of this case. It is now well
established that the due process clause requires that a defendant, if not
present in the state, have certain minimum contacts with it such that the
maintenance of the suit does not offend traditional notions of fair play and
substantial justice. The “minimum contacts” required can be satisfied either
through contacts sufficient to support specific jurisdiction, or contacts that
adequately support general jurisdiction. General jurisdiction will attach where
the defendant’s contacts with the forum state are not related to the
plaintiff’s cause of action, but are continuous and systematic. Specific
jurisdiction arises when the defendant has purposefully directed activities
toward the forum state from which the litigation arises or to which it relates:
People Solutions, Inc. v. People Solutions, Inc., 2000 U.S. Dist. LEXIS 10444; Millenium
Enters., Inc. v. Millenium Music, LP, 33 F. Supp. 2d 907,
1999 U.S. Dist. LEXIS 3709; Bancroft & Masters, Inc. v. Augusta National Inc., 223 F. 3d 1082, 2000
U.S. App. LEXIS 20917; Calder v. Jones, 465 U.S. 783.
[41]
Considering
the absence of Intermix’s real, concrete and ongoing presence on Canadian soil,
it seems to me the only possible way to conclude that Intermix has minimum
contact with Canada is through the specific
jurisdiction theory. In Millenium Enterprises, Inc., above, the U.S.
District Court for the District of Oregon summed up the various possibilities
in this respect in the following way, at pages 915-916:
At one end of the scale are circumstances
where a defendant “conducts business” over the Internet with residents of the
forum, allowing for the assertion of personal jurisdiction in most cases. Zippo,
952 F. Supp. at 1124. In such situations, the assertion of jurisdiction is
almost always proper. At the opposite end are situations where a defendant
simply posts information on a Web site which is accessible to users in the
forum state as well as others. “A passive Web site that does little more than
make information available to those who are interested in it is not grounds for
the exercise of personal jurisdiction.” Id. In the middle are situations where a
defendant operates an interactive Web site, allowing a user to exchange
information with the host computer. In such a case, a court must review the
“level of interactivity and commercial nature of the exchange of information”
to determine whether jurisdiction should be exercised. Id.
[42]
The
record in the present case does not allow me to come to the conclusion that the
websites Intermix operates are interactive in nature. These websites do not
allow users to communicate and exchange information with the sponsors of the
site, or to order products online. But even if they could be characterized in
such a way, I do not think Intermix could be found to have the level of interactivity
with Canada that could justify a
finding of minimum contact. The software that can be downloaded from Intermix’s
websites is free, there has been no targeting of Canada or of Canadian consumers in any specific
way, there is no specific content for a Canadian audience, and Intermix has
never purposely availed itself of Canada’s laws. Bearing in mind that the test to find a
defendant has minimum contact must necessarily be more stringent when a foreign
country is involved (as opposed to another state in the same country), I am
unable to conclude that Intermix has minimum contact with Canada or with the subject
matter of the present claim.
[43]
Even
if I were to conclude that this Court can assume jurisdiction, it would not be
reasonable to do so as there is another more appropriate forum capable of
assuming jurisdiction. As Justice John Sopinka explained in Amchem,
above, at paragraph 20, “[f]requently there is no single forum that is
clearly the most convenient or appropriate for the trial of the action but
rather several which are equally suitable alternatives.” In those cases,
courts have developed several factors to determine the most appropriate forum
for the action. In Muscutt, above, at paragraph 41, Justice Robert Sharpe
gave a non-exhaustive list of the factors to be taken into consideration:
- The location of the majority of
the parties;
- The location of key witnesses and
evidence;
- Contractual
provisions that specify applicable law or accord jurisdiction;
- The avoidance of a multiplicity of
proceedings;
- The applicable law
and its weight in comparison to the factual questions to be decided;
- The geographical factors
suggesting the natural forum;
- Whether declining
jurisdiction would deprive the plaintiff of a legitimate juridical advantage
available in the domestic court.
[44]
In
the present case, at least two factors strongly suggest that California (or,
possibly, another U.S. state) would be a
better forum to hear a claim related to Intermix’s allegedly anticompetitive
behaviour. The evidence that Mr. Desjean is seeking from Intermix is presumably
all located in the U.S., as well as the key
witnesses who could testify in relation to that evidence. There is also a
clause in the Licence Agreement which provides that the laws of the State of California will govern the
agreement, without giving effect to any conflict of law principles.
[45]
In
light of the foregoing, I do not think that this Court could, or even should,
assume jurisdiction over Mr. Desjean’s claim. As a result, there is no
necessity to pronounce on Intermix’s subsidiary arguments - that is, whether
the statement of claim is frivolous or vexatious and constitutes an abuse of
the process of the Court. Nor is it relevant to determine if this Court would
be acting within the confines of section 101 of the Constitution Act, 1867
if it were to rule on this claim. This question can only be addressed properly
if it is first decided that a Canadian court is a proper forum for a claim of
this nature.
[46]
As a
result, the statement of claim must be struck for this Court’s lack of
jurisdiction over the defendant and the matter. Consequently, the motion for
the certification of this action as a class action must be dismissed, as it
does not meet the requirements set out in rule 299.18 of the Federal Courts
Rules, SOR/2002-417, s. 17 as amended. In accordance with Rule 299.41(1), no
order is made as to costs.
JUDGMENT
THIS COURT ORDERS THAT: The statement of claim
must be struck for this Court’s lack of jurisdiction over the defendant and the
matter. Consequently, the motion for the certification of this action as a
class action must be dismissed, as it does not meet the requirements set out in
rule 299.18 of the Federal Courts Rules, SOR/2002-417, s. 17 as amended.
In accordance with Rule 299.41(1), no order is made as to costs.
"Yves
de Montigny"
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